His Advantage Plan’s Drug Coverage Will Cost $0 a Month. Social Security Will Still Deduct a $91 Part D Surcharge, and His Plan Will Never See a Dollar of It
His drug plan costs nothing every month, yet Social Security quietly pulls a Medicare surcharge from his benefit anyway, and his insurance company never sees a penny of it. Understanding why these two charges travel completely separate paths could change…
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His Medicare Advantage plan charges a $0 monthly premium for its drug coverage. The brochure says so, his plan’s Annual Notice of Change (ANOC) says so, and both are correct. Every month, $91 will still be taken out of his benefit for Part D, and his plan will never receive any of it.
That $91 is Medicare’s income-related monthly adjustment amount (IRMAA) for drug coverage. It is the top Part D surcharge in the 2026 schedule, and few people ever pay it. CMS says only about 8% of Part D enrollees pay any income-related amount at all. A retiree who sold a business, exercised stock options or converted a large IRA a couple of years ago can find it waiting just as open enrollment gets underway.
A $0 Plan Premium and the Part D Surcharge Arrive as Separate Bills
Two different parties set these two charges. The insurance company sets the drug premium on its Advantage plan, and competition for enrollees drives many of those premiums to zero. Medicare sets the surcharge. Social Security ties it to the national base beneficiary premium, so the price of your own plan has no bearing on it. A $0 Advantage plan and an expensive standalone drug plan carry the same surcharge at the same income.
Collection follows its own path too. Social Security withholds the surcharge from monthly benefits regardless of how the beneficiary pays the plan premium. If his Social Security benefit is not large enough to cover the full surcharge, CMS bills him directly instead. Railroad Retirement beneficiaries are billed separately through the Railroad Retirement Board. Either way, the money goes to Medicare. The insurance company never handles it.
Income From Two Years Back Sets This Year’s Charge
The surcharge is based on modified adjusted gross income (MAGI), which Social Security defines as adjusted gross income plus tax-exempt interest. The second piece surprises municipal bond investors: interest that escapes federal income tax still counts here. Medicare pulls that figure from the tax return filed two years earlier, so 2024 income sets 2026 premiums.
That lag drives the whole problem. A taxable home sale, a large capital gain or Roth conversion looks like a one-time tax bill in the year it happens. Two years later, Medicare bills for it again. The plan premium can sit at $0 for years while the surcharge rises, falls or goes away as income moves between levels. Widows and widowers face their own version of this. Once they switch from joint to single filing, the lower single brackets can trigger a surcharge on household income that never triggered one before.
Switching Plans Leaves the Surcharge in Place
Open enrollment makes one fix look easy: find another $0 plan. The surcharge follows the person, though. It applies to whatever Part D coverage he picks for the premium year, whether that’s a standalone drug plan or an Advantage plan with drug coverage. Going 63 days or more without Part D or other creditable drug coverage can trigger a late enrollment penalty if he signs up again later.
He has two ways to change the amount. If Social Security used wrong or outdated tax data, he can send a corrected or more recent return. If his income dropped because of a qualifying life-changing event, he can report it and ask for a new determination. Qualifying events include stopping or cutting back work, a spouse’s death, divorce and losing pension income.
Income increases he chose himself stay on the record. Moving retirement savings into a Roth account or a home sale that drives MAGI higher will not qualify, however big it was (we laid out the Part D surcharge and the rest of Medicare’s premium traps in a free guide to the hidden bills that catch retirees off guard).
Read Both Notices Before Open Enrollment Closes
The plan’s ANOC covers next year’s plan premium, formulary, pharmacy network and copays. It leaves out the surcharge because the insurance company has no say over it. When a surcharge applies, Social Security sends its own letter with the premium amount and the reason for the determination, including the tax year it used. Social Security announced the 2027 cost-of-living adjustment (COLA) at 3.6%, and the year-end benefit notice will show how much of that raise Medicare deductions take back.
Plan Next Year’s Income Before You Pick a Plan
The plan can truthfully advertise zero while Medicare bills $91 a month, because the two charges come from different places. The decision that matters most is two years away. Before moving retirement money into a Roth account, taking a large realized gain or selling a home this year, run the numbers through MAGI and see which surcharge levels the move lands in once the lookback catches up. If a qualifying event has already cut his income, he should report it to Social Security now so next year’s surcharge uses his current income instead of an old return.
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Gerelyn Terzo is the author of dividend investing handbook "Dividend Investing Strategies: How to Have Your Cake & Eat It Too." A veteran financial journalist, she covers agri-finance for outlets like Global AgInvesting and the broader stock market and personal finance for 24/7 Wall Street. She began at CNBC and later helped launch Fox Business in New York. Gerelyn currently resides in Woodland Park, Colorado and dabbles in nature photography as a hobby.
